University of Groningen
Giving hydrogen a jump start
Hulshof, Daan; Mulder, Machiel; Perey, Peter
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Hulshof, D., Mulder, M., & Perey, P. (2021). Giving hydrogen a jump start: lessons learned from Dutch
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Centre for Energy Economics Research (CEER)
Daan Hulshof, Machiel Mulder
en Peter Perey
Giving hydrogen a jump start |
Daan Hulshof, Machiel Mulder and Peter Perey
Giving hydrogen
a jump start |
Lessons learned from Dutch policies in
other industries
Giving hydrogen a
jump start
Lessons learned from Dutch policies in
other industries
Daan Hulshof, Machiel Mulder and Peter Perey
D. Hulshof, M. Mulder and P. Perey
Giving hydrogen a jump start: lessons learned from Dutch policies in other industries. Centre for Energy Economics Research, CEER Policy Papers 9 – University of Groningen, The Netherlands – January 2021
Keywords:
Hydrogen, agriculture, housing, natural gas, electricity, policy evaluation
The research for this policy paper has been conducted with financial support from GasTerra, a Dutch wholesaler in gas. The full responsibility for the content of this paper lies solely with the authors. This paper does not necessarily reflect the opinion of GasTerra.
@Hulshof, Mulder and Perey ISBN: 978-94-034-2915-1 (print) ISBN: 978-94-034-2916-8 (pdf)
Centre for Energy Economics Research; http://www.rug.nl/ceer/ Department of Economics and Business, University of Groningen; http://www.rug.nl/feb/ Nettelbosje 2, 9747 AE Groningen
Contents
1. Introduction
1.1 Background and objective
1.2 Research scope and outline of this paper
2. Natural-gas policy after discovery Groningen field 2.1 Introduction
2.2 Policy objectives 2.3 Policy instruments
2.3.1 Volume strategy and investments 2.3.2 Pricing strategy
2.3.3 Organisation of the gas sector 2.4 Effectiveness of policy
2.5 Response to expected and unanticipated effects of policy 2.5.1 Expected effects from the gas-sector policies 2.5.2 Unanticipated effects from the gas-sector policies 2.6 Conclusions and lessons learned
2.6.1 Conclusions on the development of the natural-gas sector 2.6.2 Lessons learned
3. Fostering the agricultural industry after WOII 3.1 Introduction
3.2 Policy objectives and instruments 3.3 Effectiveness of policy
3.3.1 Productivity 3.3.2 Structural change 3.3.3 Total production 3.3.4 Income and prices 3.3.5 Environmental effects 3.4 Effects of agricultural policy
3.4.1 Debate within agricultural sector 3.4.2 Benefits of EU agricultural policy 3.4.3 Adaptations of policy
3.5 Conclusions and lessons learned
3.5.1 Conclusions on agricultural sector policy 3.5.2 Lessons learned
4. Solving housing shortages since WO II 4.1 Introduction
4.2 Policy objectives 4.3 Policy instruments 4.3.1 Housing associations
4.3.2 Policy documents on spatial planning 4.3.3 Owner-occupied homes
4.4 Effectiveness of policy 4.4.1 Solving housing shortage 4.4.2 Owner-occupied homes
4.5 Response to expected and unexpected policy effects
4.5.1 Effect on municipal housing companies and housing associations 4.5.2 Effect of decentralisation on housing shortage
4.5.3 Effect of Dutch housing policy on housing prices 4.6 Conclusions and lessons learned
4.6.1 Conclusions on Dutch housing policy since WWII 4.6.2 Lessons learned
5. Changing the generation portfolio in the electricity sector 5.1 Introduction
5.2 Policy objectives and instruments 5.3 Effectiveness of policy
5.4 Distribution effects
5.5 Conclusions and lessons learned
5.5.1 Conclusions regarding the electricity sector policy 5.5.2 Lessons learned
6. Lessons learned for hydrogen policy References
1. Introduction
1.1 Background and objective
Historically, hydrogen has only been used as feedstock in the industry, e.g. in the production of ammonia for making fertilizer, while other potential applications are still scarce. Currently, however, hydrogen is increasingly seen as the energy carrier in future low-carbon energy systems. This is due to the fact that it has the technical potential to replace natural gas as it can be used for heating, while it can also be used as a fuel in transport and as feedstock in the chemical industry. In addition, hydrogen produced through electrolysis can possibly offer flexibility to electricity markets and networks when they have to deal with growing amounts of variable generation from renewable sources.
Because of these perceived benefits, many countries within and outside the EU are now targeting at a rapid deployment of hydrogen in various segments of the economy (see e.g. EC, 2020; EZK, 2020). In order to realise these ambitions a significant number of actions have to be taken in a short period of time. Amongst others, there is a need for a major substitution within demand, a strong increase in the supply of hydrogen produced through electrolysis, as well as the development of a well-functioning infrastructure including international connections and appropriate regulation.
The potential of hydrogen as a key energy carrier in low-carbon energy systems has been analysed extensively from a technical-engineering perspective. Most of this research focusses on the technical feasibility and the production costs on plant level, while increasingly attention is paid to the design of markets for hydrogen. It is not evident, however, that a well-functioning market of hydrogen will develop automatically, even if the
production is technically feasible and the overall societal benefits exceed the overall societal costs. With hydrogen taking a more prominent role in both European as national plans for the energy transition, the questions arise what is needed for a large-scale implementation of hydrogen in these segments and what are the necessary conditions for creating a liquid hydrogen market.
The creation and rapid development of an industry, driven by a common societal objective or problem is not new. In the post-war European countries, including the Netherlands, we have seen numerous examples of industries that have been created or helped to develop with the support of public interventions. This holds in particular for the agricultural and housing sector. In many European countries, including the Netherlands, both sectors suffered from a lack of supply, high prices and low quality in the first decade after the Second World War. In order to overcome these problems, governments took a variety of measures. Another, typical Dutch, example of a massive development of an industry is the transition of the energy system towards the production and use of natural gas after the discovery of the Groningen field in the mid-1960s. Another example of strong government intervention in an industry to realize fundamental changes is the electricity industry where governments intervened in the process of investments in new power plants in order to realize a transition from fossil-fuel generation towards renewable generation.
1.2 Research scope and outline of this paper
In this paper, we explore the developments of the Dutch natural-gas, agricultural, housing and electricity industries over the past decades and how they have been fostered by various types of policy measures. As part of these explorations, we also pay attention to the role of private and public institutions and how the costs and benefits of these developments were
distributed across society. Finally, we reflect on the lessons learned from these industries and how these lessons can be applied to the hydrogen market when the ambition is to foster the development of the hydrogen industry. In formulating these lessons, we depart from the assumption that the hydrogen industry will be developed, which means that we do not go into the efficiency of such a policy (as is discussed, for instance, by Mulder et al., 2019). In contrast to for instance CIEP (2019), we do not assume that a fundamentally different way of organizing the energy system is needed in order to promote hydrogen, but we want to determine the economic criteria to develop hydrogen in an efficient and effective way.
In Chapter 2, we analyse the development of the natural-gas sector after the discovery of the huge Groningen gas field in 1959. In Chapter 3, we analyse how the agricultural sector has been developed after the shortage of food and low agricultural incomes immediately after the Second World War. In Chapter 4, the attention shifts to the building sector and how the scarcity in the housing market has been addressed through various types of policy measures. Chapter 5 is directed at the electricity sector and analyses how the transition from fossil-energy generation towards renewable generation has been pursued. Based on the lessons learned from these four examples of transitions, we formulate conclusions on how the hydrogen sector can be promoted in an efficient and effective way.
2. Natural-gas policy after discovery Groningen field
2.1 Introduction
In 1959, a large natural-gas field was discovered in the province of Groningen, the north of the Netherlands (referred to as the Groningen field from here onwards). The discovery and development of this resource will turn out to have a profound impact on the Dutch (and Western-European) energy landscape, in terms of both energy production and consumption.
In the period immediately after World War II, the Dutch energy landscape was dominated by coal and oil, where the latter was on the rise at the expense of the former. Between 1946 and 1959, the share of coal as primary energy source in the Netherlands decreased from 70% to 53%, whereas the share of oil in that same period increased from 16% to 38% (see Figure 2.1). Natural gas was not present in the primary energy mix in 1946 and its role (1%) remained negligible until 1959. Mainly due to the production of cokes oven gas from coal, the gas share in the Dutch final-consumption energy mix in 1959 was, at 2%, slightly more important (Ministerie van Economische Zaken, 1962).
Despite the virtual absence of gas in the primary and final-consumption energy mixes around 1960, soon after the discovery of the Groningen gas field in 1959, both the discoverer of this field, the Nederlandse Aardolie Maatschappij (NAM)1 and the Dutch government recognised its economic
potential. This recognition was based on the relatively favourable conditions for extraction, translating to low production costs, in combination with the large size of the field. In 1962, the size of the Groningen field was estimated at 470 billion cubic meters (bcm), the
equivalent of approximately 14 to 15 times total Dutch annual domestic energy consumption in that year. This estimate was revised upwards to 1100 bcm in 1963, 1900 bcm in 1967, and 2500 bcm in 1973. The original size of the field was ultimately estimated at 2800 bcm (see Figure 2.2).2 The
Groningen gas reserve was considered to be a ‘giant’ natural-gas field for this reason and remains among the ten largest natural-gas fields that have been discovered globally.
This section explores the reaction of the Dutch government to the discovery of this giant gas reserve. Specifically, the questions addressed in this section are: what targets were formulated with respect to developing the Dutch natural-gas sector?, which policy instruments were used to achieve these targets?, to what extent were these targets realised?, what were the anticipated and unanticipated external effects of the government policies, and, finally, how have these been dealt with?
2.2 Policy objectives
In his 1962 memo on the Groningen-field discovery, the Dutch Minister of Economic affairs De Pous announced the government’s intention to maximise the “economic value” to the Dutch society from the discovered reserve (Ministerie van Economische Zaken, 1962). For the government at that time, maximising economic value was equal to maximising revenues from the production of natural gas to the state, and this constituted the primary policy objective of the Dutch government. This was also reflected in the political discussion in the beginning of the 1960s surrounding the concession for the Groningen field. Some political
2 See:
Figure 2.1 Primary energy supply by source in the Netherlands, 1946-2019
Source: CBS
Figure 2.2 Natural-gas reserves and cumulative production in the Netherlands, 1965-2020
Source: Ministerie van Economische Zaken en Klimaat 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 19 46 19 49 19 52 19 55 19 58 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 8 2 19 8 5 19 8 8 19 91 19 94 19 97 2000 200 3 2006 2009 201 2 201 5 201 8* * Shar e in e n ergy m ix
Coal Oil Natural gas Renewable energy Other (e.g. nuclear)
0 1000 2000 3000 4000 19 65 19 67 19 69 19 71 19 73 19 75 19 77 19 79 19 8 1 19 8 3 19 8 5 19 8 7 19 8 9 19 91 19 93 19 95 19 97 19 99 2001 200 3 2005 2007 200 9 201 1 201 3 201 5 201 7 201 9 Vo lume (bcm )
parties, in particular the labour party (PvdA) opposed the plans of minister De Pous as they thought the share of profits for the government was too low compared to the share for the NAM (Correljé et al., 2003).
Writing this in a period where natural gas is often associated with negative externalities, especially climate change from CO2 emissions and
earthquakes (particular in the Netherlands), it may be instructive to mention that such external effects were not perceived in the 1960s and 1970s, at least not in the mainstream scientific literature and policy discussions. In contrast, natural gas was generally perceived to have environmental benefits over coal, because burning natural gas results in considerably less local air pollution.
Given the governmental objective of maximising state revenues from gas production, the primary questions on how to develop the Groningen field and the natural-gas sector included the following: which agreement should be made with the production company NAM?, who should the gas be sold to?, at what price should the gas be offered?, how should the gas be distributed to the end-user?, and at what rate should the Groningen field be depleted? In summary, the government, as the owner of the resource, had to agree on: (i) a production licence with the concession holder in return for a stake in the profits, (ii) a marketing plan constituting who to sell to and at what price, and (iii) a long-term production plan regarding volume (i.e. timing of the production pace).
Regarding the long-term production plan, the general belief in the 1960s was that it was a matter of decades before nuclear energy would become the dominant source of energy (Schot et al., 2000). This contributed greatly to a sense of urgency for developing and marketing the Groningen field. A period of 20 to 30 years was initially often mentioned as target period for depleting the Groningen field (Ministerie van Economische Zaken, 1962). However, the discovered volumes, even at early estimates of 470 bcm and
11000 bcm in 1963, were immense in comparison with the existing Dutch gas consumption of around 2.5 bcm in 1962 (Ministerie van Economische Zaken, 1962). For the profit-maximising government’s marketing plan, these circumstances implied that selling considerable amounts of natural gas required realising an energy transition away from existing coal and oil consumption towards natural-gas consumption.
2.3 Policy instruments
The strategy to maximise profits from the Groningen field can be summarized as selling large quantities at the highest possible price, initially in the highest possible pace. The strategy for selling large quantities, i.e. realising the energy transition, primarily entailed: (i) building a high-pressure gas network and extending local distribution networks, connecting virtually all (potential) users, (ii) offering the natural gas to the large industry, neighbouring countries, and households for as many domestic appliances as possible, and (iii) selling the gas at a price which was sufficiently attractive for end-users to switch towards gas consumption. The strategy for obtaining the highest possible price entailed: (i) creating a monopolist producer (NAM) and a wholesale seller (Gasunie) of natural gas, and (ii) offering the gas at a price equal to the price of alternative energy sources (Ministerie van Economische Zaken, 1962). This pricing strategy came to be known as the market-value principle.
2.3.1 Volume strategy and instruments
On the demand side, specifically on the matter of which end-users to target, the government accepted a proposal from NAM to target domestic households, industry, as well as exports to neighbouring countries. Serving many households, in particular, implied the need for a considerably more extensive and, therefore, expensive gas network. At the same time, this
extensive network enabled considerably larger volumes of gas, as compared to serving only industrial users and export markets.
The to-be-constructed high-pressure gas transmission network needed to connect all targeted users to the production location in Groningen. In practice, all existing gas pipelines, and a large number of new local distribution pipelines, were connected to this new high-pressure network, resulting in an extensive, integrated national gas grid. Table 2.1 shows the development of the size of the distribution and transmission networks between 1962 and 1973, displaying its rapid construction and expansion. Table 2.1 Development in the size of the Dutch gas network, 1962-1973
Distribution network Transmission network
1962 2,500km 0km
1965 5,000km 1,600km
1968 All municipalities connected to the national grid
1973 6,000km 6,000km
Source: Correljé et al. 2003
The considerable costs associated with the network and gas transport were treated as an integral part of the costs of the concession. As there was no explicit transport or network component in the gas price, the costs for the grid and transportation were socialised over all users (i.e. paid from the general revenue stream associated with the gas sales). Usually, there is a considerable degree of uncertainty regarding the number of future users in the investment decision for a gas (or other type of energy) network. In this case, substantiated with simulation analysis, the government and concession holder expected that the large investments required for a national gas-transmission and distribution infrastructure could be earned
back relatively quickly (Schot et al., 2000). This was due to the expectation that gas could be offered at sufficiently competitive prices, on top of the clean characteristic of this new fuel, to persuade the various type of end-users to consume large quantities, while maintaining a high profit margin, thanks to the low costs of production, which could also be used to recover the fixed costs of the infrastructure.
Offering the gas to end-users at a sufficiently attractive price was ensured through the market-value principle: gas was priced at par with or slightly below the price of (or a weighted price of) the best alternative energy source(s) (Ministerie van Economische Zaken, 1962). The gas price was differentiated in the sense that different end-user types were offered a different price, based on their respective best alternative. This principle ensured that end-users did not pay more for gas than for their best energy substitute, persuading them to switch towards using gas.
With respect to households, besides applying the market-value principle, they were also offered regressive prices for gas. In other words, the price for gas decreased with the consumed volume. This was done to provide households with the incentive to fuel-switch towards natural gas for as many appliances as possible, in particular for space heating (Schot et al., 2000). In addition, the following other instruments were applied to encourage households to switch towards gas: marketing campaigns (e.g. in cinemas, theatres and newspapers), scrap premiums for non-gas appliances, inspections by the authorities for the suitability to burn natural gas in existing household appliances, and financial support to low-income households (e.g. in the form of low-cost loans). While assistance with retrofitting existing burners (e.g. stoves and geysers) was provided, end-users themselves were responsible for purchasing new appliances, also financially. Contributing to households’ willingness to switch was the fact that natural gas provided a number of benefits over other energy types.
Importantly, in comparison with coal, natural gas did not require local, highly polluting storage. In addition, gas-burners were more convenient to operate, and gas-fired central-heating systems enabled households to heat all rooms in a house.
With respect to the large industry, the benefits of gas were somewhat similar. Coal required intensive and costly transport and storage. Moreover, gas-burners were easier to control than coal-burners and therefore more efficient in terms of energy use and costs (when gas is priced equivalently in energetic terms). These advantages over coal-burners also largely apply to oil-burners, which was an important reason for the increase in oil consumption at the expense of coal in the 1940s and 50s. Given that most industrial users in the 1960s were choosing oil-burning equipment in new installations, gas was offered on the basis of the prices of fuel and heating oil in this sector.
For the power sector, natural gas provided fewer benefits over coal and oil than for other industrial user types (Correljé et al., 2003). This implied that gas had to be priced relatively more competitive (i.e. at lower prices) in this sector to persuade fuel-switching, and which also has as a result that the government/concession holder initially did not offer gas to electricity producers. As the estimated reserves were revised upwards several times in the 1960s, however, from 1965 onwards, gas was also offered to the power sector at competitive prices.
Export markets, in particular in the neighbouring countries Belgium and Germany but also France and Italy, were also attractive destinations for the Dutch natural gas. Like in the domestic market, the Netherlands only faced competition from other energy types in export markets, particularly in the 1960s and beginning of the 1970s. Not hindered by competing natural-gas producers, this enabled the Dutch government to apply the market-value principle in export markets as well. Long-term take-or-pay
contracts were negotiated in which a minimum volume was contracted, despite of whether this volume would actually be demanded. These contracts reduced the volume risk for the Dutch producer and transporter, and the price risk for the foreign buyer. Furthermore, gas exports had ‘earmarked’ destinations in order to prevent gas-to-gas competition. For instance, when the gas price at the Dutch border was lower for Italian than for German customers, e.g. to account for higher transport costs or political factors, earmarked destinations prevented Italian buyers to offer the gas on the German market.
2.3.2 Pricing strategy
As a monopolist, the concession holder for the Groningen field did not face any competitors in marketing the gas, enabling this firm to have a very strong influence over prices. While most economists would probably agree that, in terms of market structure, a monopoly market does not maximize the economic value to society, it does generally result in maximum profits for a producer, and, in this case, also the state as shareholder.
While the market-value principle ensured that gas was priced sufficiently attractive to incentivise fuel-switching, it also ensured that the supplier obtained virtually the maximum price it could possibly get. The principle was that end-users did not pay more for gas than for alternative fuels, but also not (much) less. By offering the gas at differentiated prices to the different types of end-users, based on their preferred alternative fuel, the supplier ensured that it received close to the highest price that each end-user was willing to pay for it. These differentiated prices were jointly determined by the government and the other shareholders.
Granting a monopoly to the concession holder implied that the existing gas producers, most of which owned local distributions grids, such as Staatsmijnen and Hoogovens, needed to be prohibited from being able to
offer gas to end users. This was achieved in practice through not allowing other producers than the concession holder access to the newly-built natural-gas network. Producers owning local distribution networks were, in return for financial compensation, practically mandated to transfer their network over to Gasunie. Gasunie was the new transport company, created as part of the Groningen-field concession. This transport company owned and operated the newly built high-pressure gas network. In addition, in return for financial compensation (see Section 2.5.1) Gasunie acquired the existing local distribution grids, primarily from Staatsmijnen, Hoogovens and Staatsgasbedrijf.
2.3.3 Organisation of the gas sector
The initial organisation of the gas sector, referred to as the ‘gasgebouw’ is depicted in Figure 2.3. The most relevant agents were:
• NAM, the monopoly producer owned by Shell and Esso (both with an ownership stake of 50%);
• Gasunie, monopoly transporter and wholesale supplier;
• Maatschap Groningen, a holding company for distributing profits from the natural-gas sector between the government and NAM;
• Staatsmijnen (DSM), public coal company serving as shareholder on behalf of the government in Gasunie and Maatschap Groningen. Gasunie and Maatschap Groningen were created as part of the concession for the Groningen field.
From a gas-flow perspective, the monopolist NAM produced the gas and offered this to the monopoly transporter and wholesale supplier Gasunie. In turn, Gasunie was responsible for selling the gas to the various type of end-users.
From a money-flow perspective, Gasunie would collect the wholesale revenues from gas sales. After deducting its own costs, for transport and
administration, and a statutory profit of 18mln Dutch Guilders, the remainder of the revenues were transferred to the Maatschap Groningen. The shareholders of Gasunie were: the Dutch state (50%, of which 10% directly and 40% through state company Staatsmijnen, later known as DSM, and currently as EBN), and NAM (50%).
Figure 2.3 Schematic representation of the organisation of the Dutch gas sector in the 2nd half of the 20th century
Consequently, after subtracting NAM’s production costs, the remaining revenues were distributed as profits to the shareholders in the Maatschap Groningen, conform the following ownership stakes: 40% for the Dutch government (through Staatsmijnen), and 60% for the NAM. In addition, the government was entitled to a direct share in the profits of NAM of 10%. Taking into account other taxes, importantly corporate income tax, the
government initially received around 70% of profits from the natural-gas sector (Ministerie van Economische Zaken, 1962).3
2.4 Effectiveness of policy
The policies of the government resulted in a swift energy transition, away from, particularly, coal towards natural gas in the 1960s. The first considerable volumes from the Groningen field were produced in 1965, and production rapidly increased in the following years. Between 1964 and 1974, the share of gas in the primary energy mix increased from 2% to 50% (see Figure 2.1). The increase in this period is virtually exclusively due to the production and consumption of gas from the Groningen field. Until today, natural gas remains the dominant primary energy source in the Netherlands, having represented a relatively steady share of about 40-50% in the primary energy mix in the past 45 years.
The gas-market policy framework succeeded in inducing fuel-switching in all targeted sectors. Figure 2.4 shows domestic natural-gas consumption by type of end-user, and Figure 2.5 shows domestic gas production, consumption, imports and exports. These figures display that all of the targeted sectors (residential, industry, power generation and exports) experienced a rapid increase in the use of natural gas during the second half of the 1960s and beginning of the 1970s.
Associated with the successful ramp-up of production from the Groningen field, which was made possible by the induction of fuel-switching on the energy-consumption side, the Dutch government realised
3 In the wake of the high oil and gas prices of the 1970s, the distribution of profits
between the government and NAM was renegotiated (favourably for the government), see e.g. Correljé 2003. The profit distribution was renegotiated again in 2018, see https://www.rijksoverheid.nl/actueel/nieuws/2018/06/25/minister-
wiebes-sluit-akkoord-met-shell-en-exxonmobil-over-gaswinning-groningen#:~:text=In%20het%20akkoord%20staat%20dat,Groningenveld%20toek omt%20aan%20de%20Staat.
highly considerable revenues from its involvement in the natural-gas sector. Figure 2.6 displays the revenues of the Dutch government from the natural-gas sector, both in absolute terms and relative to total revenues. From 1969 to 1985, government revenues increased from €50 mln to more than €11 bln, which is equal to an increase from about 1% to 10% of its total revenues. Beyond this period, revenues have collapsed in the second half of the 1980s, as a result of the global decline in oil prices, while it increased considerably again in the 2000s and the first half of the 2010s, because of the strong increases in oil prices. In recent years, revenues have collapsed again, mainly as a result of the decision to greatly reduce the production volumes from the Groningen field in response to the increasing number of earthquakes in the Groningen region, but also in response to the lower oil and gas prices.
While the government clearly earned considerable revenues from the development of the Groningen field, it is difficult to assess whether the initial policy objective of maximising state revenues has been achieved. Indeed, a counterfactual situation with, for instance, a different marketing plan or a different method for granting the concession (e.g. auctioning) is not observed.4 Nevertheless, it is generally acknowledged that the
Netherlands succeeded in generating very high revenues from the natural-gas sector. For instance, its effective share in profits, initially of about 70%, was considerably higher than the share in profits that most foreign
4 A comparison with other gas producing countries is also somewhat complicated due
to the distinct characteristics and situation of each country. For instance, differences exist in the time production took place (e.g. Norway commenced considerable production of gas more than one and a half decades later with considerable gas production) and the local supply and demand conditions (e.g. the UK, being an island, was considerably more difficult to connect to continental Europe than the Netherlands).
countries received from their respective gas or oil activities (Schot et al., 2000).5
Figure 2.4 Consumption of natural gas by type of end user, 1963-2017
Source: CBS. * preliminary statistic
5 Fearing that, if they would find out about this, Middle Eastern governments
would try to re-negotiate their own production contracts with NAM-shareholders Shell and Esso, the latter proposed to organise the concession in a somewhat non-transparent fashion. This fear has sometimes been referred to as the sheik-effect (Gastel et al. 2014). 0 10 20 30 40 50 60 19 63 19 66 19 69 19 72 19 75 19 78 19 8 1 19 8 4 19 8 7 19 90 19 93 19 96 19 99 2002 2005 2008 201 1 201 4 201 7* V ol u me in bc m
Consumption via national high-pressure grid (power generation and large industry)
Figure 2.5 Dutch natural-gas production, consumption and international trade, 1959-2019
Source: CBS. * preliminary statistic
Fig. 2.6 Government revenues from the natural-gas sector
Source: CBS 0% 2% 4% 6% 8% 10% 0 5 10 15 20 Sh are in g ov ernm ent rev enue R ev enues (B ln Euro )
Non-tax revenue Corporate income tax -150 -100 -50 0 50 100 150 19 59 19 62 19 65 19 68 19 71 19 74 19 77 19 8 0 19 8 3 19 8 6 19 8 9 19 92 19 95 19 98 2001 2004 2007 201 0 2013 2016 * 201 9 * V ol u me in bc m
2.5 Response to expected and unanticipated effects of policy
As a consequence of the government policies for the natural-gas sector, a number of expected as well as unanticipated or unintended effects occurred which resulted in additional government intervention. This section focusses on two of those anticipated effects, and the associated government responses: the loss in demand faced by the incumbent (e.g. city and cokes) gas producers, and the decrease in Dutch coal production and related loss in economic activity and jobs. In addition, this section discusses two unintended effects which were not foreseen at the time the natural-gas sector was developed: the growing importance of the Groningen field for security of supply after the oil crises of the 1970s, and the increase in gas-production related earthquakes in the Groningen region after 2012. 2.5.1 Expected effects from the gas-sector policies
Regarding the first anticipated effect, prior to the Groningen discovery, a number of parties were active in the production and transport of gaseous energy (e.g. city, mine and coke gas). The producers and transport companies tended to be the same, regionally operating firms, including Staatsmijnen (a publicly-owned company primarily active in the production of coal in the south of the country), Hoogovens (a private company primarily active in the production of steel in the west of the country) and Staatsgasbedrijf (a publicly-owned company active in the production and distribution of gas). See Figure 2.7 for an overview of their gas-distribution networks.
As a consequence of the decision that gas production and transport was to be handled solely by the newly created monopolist, these firms were essentially put out of business. The incumbent firms were unable to sell gas themselves, such that their production and distribution assets would be worthless in the new situation. As a form of compensation for their losses,
these gas incumbents received financial compensation. In return, the ownership and control over their distribution networks were transferred to Gasunie.
Agreeing on an arrangement for financial compensation turned out to be fairly easy with the publicly-owned companies Staatsmijnen and Staatsgasbedrijf, and fairly difficult with the privately-owned company Hoogovens, who initially objected against any agreement with the government (Schot et al., 2000). A factor that may have contributed to the opposition of Hoogovens was that, in contrast to Staatsgasbedrijf and Staatsmijnen, Hoogovens would no longer play a role in the new organisation of the gas sector.
The second effect that was foreseen as a consequence of the rapid emergence of the natural-gas sector concerned the decline in economic activity in the Dutch coal sector. In the second half of the 1950s and beginning of 1960s, the Dutch coal sector already faced competitive pressure from foreign coal and oil producers who could supply at lower costs. As a result of this competitive pressure, between 1954 and 1964 (when natural-gas production was below 1 bcm), production in the Dutch coal mines decreased by 6% (Ministerie van Economische Zaken, 1965). The intention to strongly promote fuel-switching away from coal towards natural gas, as part of the natural-gas policies, resulted in the expectation that this decline would be strongly exacerbated. This expectation materialised, given that the (already declining) share of coal in the Dutch primary energy mix plummeted from 35% in 1964 to less than 10% in 1970 (see Figure 2.1). Between 1966 and 1974, all Dutch coal mines were closed, resulting in a reduction in the number of direct jobs of 45,000 in the south of the Netherlands, where the mines were located (Ministerie van Economische Zaken, 1969).
Fig. 2.7 Map of Dutch gas distribution infrastructure in 1958
Source: Adapted from Schot et al. (2000)
The coal producers were not compensated financially for their losses by the government. However, the choice for Staatsmijnen, the publicly-owned coal producer, as representative of the government in the negotiations with NAM and government’s shares in Maatschap Groningen and Gasunie was generally regarded as a form of compensation for the declining coal sector. 2.5.2 Unanticipated effects from the gas-sector policies
Regarding the first unanticipated effect, at the end of 1973, several Middle-Eastern oil-producing countries initiated an oil embargo against a number of western countries, including the USA, UK, and Netherlands. This
resulted in a global, at least perceived, tightening of the supply of oil. In turn, this contributed to a tripling of oil prices (and associated increase in gas prices) from around 3USD in 1973 to more than 10USD in 1974. It should be noted that another, arguably more important, contributing factor to these high prices was that oil demand had been growing strongly in the period up to 1973 such that many oil producers were already producing close to their production constraints. The sense of scarcity was reflected in the response to the oil embargo, as the government mandated car-free Sundays and prepared rationing of gasoline supplies in this period.6
The oil embargo and higher oil prices in the 1970s had a material impact on the political beliefs regarding the degree of scarcity of energy resources such as natural gas, the future value of oil and gas, and the security of energy supply. Somewhat contrasting with initial beliefs of energy abundance and an energy future characterized by nuclear dominance, the belief that emerged in the 1970s was that oil and gas resources were and would remain scarce, and thus valuable, resources in the long term (Ministerie van Economische Zaken 1974). Thanks to the Groningen field and the transition towards gas, the Netherlands was less dependent on energy imports, particularly on oil, which was only produced by a few, apparently unreliable countries. It took the oil crises and high energy prices of the 1970s to fully appreciate the value of having the Groningen field as a strategic reserve in this environment.
The shift in belief had direct consequences for the governmental gas-market policies. Previously, the Groningen field was considered to be
6 These measures were taken despite that actual oil volumes in Northwest Europe
were not materially affected due to other oil-producing countries (who did not participate in the embargo, such as Venezuela) being able to supply to the embargoed countries, and the major oil companies being able to reroute oil volumes from their production locations to both maintain compliance with the embargo and serve demand in the embargoed countries.
primarily a valuable source of revenue that needed to be monetized as fast as possible. In the 1970s, the emerging perception of energy scarcity resulted in the belief that the Groningen field was a scarce resource that was valuable as a strategic source of future energy supply.7 As a result, the focus
of government policy switched from solely focussing on maximising revenues towards also preserving the Groningen field. This implied that the new, overall policy objective consisted of two, somewhat ill-aligned components: producing volumes as to maximise revenues as well as preserving gas reserves for the future.
As part of the new dual policy objective, a number of measures were introduced, specifically focussed on the preservation of gas reserves (i.e. reducing the depletion rate of the Groningen field). On the demand side, gas consumption was curbed by increasing prices,8 no longer offering gas to
new power plants, not renewing existing contracts with power plants, and limiting gas exports (Ministerie van Economische Zaken, 1974). From Figure 2.5, it can be seen that these measures were successful in reducing gas consumption and production. In addition, the share of gas in the primary energy did not decrease in the 1970s and 1980s (see Figure 2.1). This jointly reflects a decrease in total energy use in this period (due to increases in energy efficiency), in turn reflecting the senses of energy scarcity and preservation.
On the supply side, the government introduced the ‘small-fields’ policy. This policy aimed at incentivising exploration for and production from other, smaller on and offshore gas fields that were present in the Netherlands. Particularly because of their smaller size, the production costs from these fields were higher than the production costs from the Groningen
7 See Mulder and Zwart (2006) for a discussion on the costs and benefits of
constraining gas production from the Groningen field.
8 Due to contractual specificities, gas prices had drifted from parity with oil prices, as
field, which is why these reserves remained largely unexploited under the initial profit-maximisation regime. Another key advantage of the Groningen field over the small fields was its ability to rapidly alter the level of production. This is particularly useful in periods of scarcity, such as during moments of peak demand in winter, or an oil embargo, increasing the value of preserving the Groningen field for future periods. As a result, the Groningen field was used as a so-called swing supplier.
The essence of the small-fields policy was that Gasunie guaranteed that it would buy any volume from producers of small gas fields at the prevailing market prices. This greatly reduced the investment risk for producers from small fields and, therefore, constituted a major incentive for investment in the production of gas from small fields.9 Figure 2.8 displays historical gas
production in the Netherlands by production source and shows that the small-fields policy was successful in triggering production from small fields in the period from 1974 onwards. At the same time, production from the Groningen field decreased considerably between 1976 and 1990. These changes in production, in addition to the decline in global oil and gas prices, contributed to the sharp decline in government revenues from the natural-gas sector in this period, as displayed in Figure 2.6.
9 Given that the Groningen field had lower production costs, there were few
incentives for Gasunie, the monopoly wholesaler, under the old regime to procure or produce gas from small fields.
Figure 2.8 Gas production in the Netherlands by source, 1963- 2018
Source: NAM, CBS
Secondly and more recently, a series of earthquakes in the province of Groningen has resulted in a major policy change regarding the production from the Groningen field. Since the 1990s, Groningen has been experiencing earthquakes and the frequency and magnitude of the earthquakes increased during the 2000s and 2010s, as shown in Figure 2.9. The most severe earthquake, with a magnitude of 3.6, occurred near Huizinge in 2012. This earthquake sparked a national debate about the safety of gas production in Groningen.10
In response to these concerns, in 2014 the Dutch government decided to limit gas production from the Groningen field, from 54 bcm in 2013 to 42 bcm for the year 2014. This limit was revised/tightened a number of times in the subsequent years. Specifically, production limits for the Groningen
10 See Mulder and Perey (2018) for an economic discussion on the gas-related
earthquake problems in Groningen. 0 20 40 60 80 100 120 19 63 19 66 19 69 19 72 19 75 19 78 19 8 1 19 8 4 19 8 7 19 90 19 93 19 96 19 99 200 2 2005 2008 201 1 201 4 201 7 Vo lu me (bc m)
field were set at 30 bcm in 2015, 27 bcm in 2016, 24 bcm in 2017, 22b cm in 2018, 19 bcm in 2019 and 10 bcm in 2020.11 In 2019, the government has
decided to stop production from the field completely in 2022, leaving around 600 bcm in the ground.12,13
Amongst the inhabitants in the Groningen region, a deep dissatisfaction has emerged in the past decade regarding the attitude of the government and NAM in dealing with the adverse effects from the gas-production-induced earthquakes.14 These damages include material damage,
particularly property damage and a decrease in housing prices, as well as immaterial, psychological damage.15 Dissatisfaction among the inhabitants
results from, among other things, the fact that obtaining compensation for suffered damages has proven to be a very complicated process and experience, frequently taking many years. In addition, inhabitants perceived that, in spite of their earthquake concerns, the government and NAM responded very late with limiting gas production from the Groningen field.
11 See e.g. https://www.nlog.nl/en/groningen-gasfield and
https://www.nam.nl/nieuws/2019/productie-groningen-gasveld-gasjaar-2018-2019.html
12 See e.g.
https://repository.overheid.nl/frbr/plooi-
contentbeheer/rijksoverheid/2020/plooicb-2020-1737/1/pdf/plooicb-2020-1737.pdf
13 Based on CBS reports
https://www.cbs.nl/nl-nl/nieuws/2017/17/aardgasbaten-op-laagste-niveau-in-ruim-40-jaar and
https://www.cbs.nl/nl-nl/nieuws/2019/22/aardgasbaten-uit-gaswinning-bijna-417-miljard-euro
14 For a more detailed discussion, we refer to Mulder and Perey (2018).
15 See e.g.
https://www.rechtspraak.nl/Organisatie-en-
contact/Organisatie/Rechtbanken/Rechtbank-Noord-
Figure 2.9 Total number of earthquakes with a magnitude > 1.5 per year, categorised by magnitude, 1991-2018
Source: NAM
2.6 Conclusions and lessons learned
2.6.1 Conclusions on the development of the natural-gas sector
Upon the discovery of the giant Groningen gas field in 1959, the Dutch government formulated as its objective to maximise state revenues from the development of this field. This objective can be decomposed in two components: maximising total profit from gas production (to be shared between the government and its private partners), and maximising the portion of this profits to the Dutch government.
Regarding maximising profit from gas production, considering that gas played a marginal role in the Dutch and Northwest-European energy system at that time, it was perceived that marketing the large volumes of gas from the Groningen field required realising an energy transition away from coal and oil towards gas. Realising this transition was an integral part of the profit-maximisation objective. This energy transition materialised
0 5 10 15 20 25 30 35 N u mb er of eart h qu ak es >3.5 < 3.5 < 3.0 < 2.5 < 2.0
very swiftly in the 1960s and beginning of the 1970s. Previously being negligible, gas production and consumption increased very rapidly in this period, reaching a share of 50% in the Dutch primary energy mix in 1974. Since that year, gas has remained the largest primary energy source in the Netherlands (maintaining a share of 44% in 2019). Therefore, the government’s goal to realise an energy transition towards natural gas can be considered as achieved.
The Dutch government has also generated a very substantial amount of revenues from the natural-gas sector. Despite that it is difficult to assess whether government revenues have actually been maximised, this chapter concludes that the government has been successful in realising its revenue-maximisation objective.
The main instruments that contributed to successfully realising the energy transition and maximising government revenue were:
• creating a single producer, distributor and wholesale supplier for natural gas which obtained monopoly power in the supply of gas; • developing an extensive infrastructure for the transport and
distribution of gas;
• promoting demand in as many sectors as possible, including domestic households and industry, for as many applications as possible, and export markets; and
• facilitating the trade in gas by standardizing the unit of trade (i.e. MWh, independent on the precise physical quality of the gas molecules), while systems of green certificates are introduced to facilitate supply of renewable gas.
• incentivising fuel-switching away from coal and oil towards gas through sufficiently favourable gas pricing, based on the market-value principle.
The effectiveness of these instruments was reinforced by the fact that gas from the Groningen field could be produced highly competitively in comparison with other energy types, next to the favorable characteristics of natural gas over coal. In line with the intention to maximize profits from the gas sector, this enabled pricing of Dutch gas conform the market-value principle of pricing gas equivalently to the price of the next-best energy alternative. Furthermore, owing to the fact that this pricing principle ensured that each user paid a price which was close to the price it was maximally willing to pay, the distribution of the considerable costs of the gas network over the users was not a relevant issue, as these were simply paid from the maximized gas-market surpluses.
The Dutch government was confronted with and addressed several expected and unexpected side effects of the initial gas market policies. The expected effects included the losses in demand faced by domestic coal producers and incumbent (e.g. mine and cokes) gas producers. These sectors were compensated in a financial (incumbent gas producers) or non-financial (coal producers) manner. The unanticipated effects include the perceived security-of-supply risk following the oil crises and high energy prices of the 1970s, and the gas-production-related earthquakes in the Groningen region. These effects resulted in changes in the policy objective (e.g. preserving the Groningen reserves for security of supply), and implemented policies (e.g. limiting and ending production from the Groningen field.
2.6.2 Lessons learned
A number of key lessons for the rapid development of an energy market emerge from this chapter. In this section we formulate six lessons.
1. On the supply side, creating a monopoly producer and, particularly, network operator/wholesaler may contribute to the rapid expansion of
an energy sector that requires a network infrastructure. Specifically for a network infrastructure, there are large economies of scale associated with the construction, such that it is much more efficient to create a monopolist in this domain. In addition, having a single network (and producer) in the case of natural gas greatly reduces investment risks and thus contributes to a swift market development. Moreover, in building a network infrastructure, a single network operator faces much less coordination frictions and therefore transaction costs as compared to a situation with multiple operators with their own networks. In the presence of a monopolist, it is of course crucial to implement appropriate regulation.
2. In realizing a market expansion, it is critically important that the good is preferred by users through a sufficiently attractive price, quality or combination of these two.
3. When the production costs of a good are considerably lower than the willingness-to-pay for it (i.e. the perceived benefits), policy instruments may be directed at other targets than realising a transition towards that good, such as maximising government revenues from the targeted sector. As it may not be needed for realising a transition towards the good, whether policy intervention is justified depends importantly on the presence of market failures,16 as well as on concerns regarding the
distribution of benefits and costs.17 For instance, the natural-gas market
suffered from a number of these problems, including the presence of
16 E.g. the presence of network externalities frequently present in energy markets.
Another example is the tragedy-of-the-commons problem which, for instance, occurs when natural-gas production is unregulated and every producer has access to the same natural-gas field, and results in collective over-production due to the misalignment between the interest of private producers and the common interest of the group as a whole.
17 E.g. natural resources are often considered as collective property, such that it is
perceived as fair to let society as a whole profit from the associated profits (i.e. the resource rents).
network externalities, a tragedy of the commons situation, and the presence of very considerable resource rents.
4. Parties that ‘lose’ as a result of the rapid expansion of a market do not necessarily have to be compensated financially. A form of non-financial compensation includes, for instance, providing the losing side with a role in the new sector.
5. Market circumstances are subject to change and such changes may require a shift in the initial policy objective, or may result in initial policies becoming ill-suited for achieving the initial policy objectives. For instance, when unforeseen external effects materialize (e.g. earthquakes due to natural-gas production), it is important to adapt initial policy instruments and objectives (e.g. maximising state revenues from natural-gas production) to these new circumstances. When not accounted for in a proper manner, the new circumstances (e.g. the earthquakes) may result in the situation that the ultimate, overall impact on society of promoting a sector could be perceived as negative. This could potentially even occur when the benefits outweigh the costs, but the distribution of costs and benefits is perceived as highly unfair. Failing to compensate parties that bear the costs of negative externalities in a fair manner can result in strong opposition and a negative perception of the promoted sector by the public.
6. Public-private cooperation may contribute to the swift development of a sector when these two actors complement each other and their interests are highly aligned. In the case of the natural-gas sector, it appeared that the NAM and its shareholders provided the required expertise to produce natural-gas and to build the required infrastructure in an efficient manner (i.e. at low costs for society), whereas the government provided the required regulatory framework in an efficient manner (e.g. swift implementation of legislation and provision of
permits). However, when the interests of the government and its private partner become less aligned, for instance as a result of the emergence of an unanticipated negative externality, strong public-private cooperation may reduce the responsiveness of the government to these changed circumstances. This may be particularly true for situations where the public interests are not sufficiently guaranteed in the governance structure of the public-private cooperation.
3. Fostering the agricultural industry after WOII
3.1 Introduction
In the first decade after World War II, countries in Europe suffered from many things, including a lack of food. The productivity of the agricultural industry was low, resulting not only in low levels of food production, but also in low-income levels. Initially on a national level, but increasingly on a European level, governments wanted to foster the agricultural industry in order to overcome these problems. This chapter describes the agricultural policy objectives and the policy measures taken to realize these objectives, the effectiveness of these measures as well as how governments dealt with a number of side or adverse effects.
3.2 Policy objectives and instruments
The ambition to stimulate the agricultural production within Europe was one of the main components of the Treaty of Rome (1957) which established the European Economic Community.18 In this treaty, the policy objectives
regarding agriculture and food supply were formulated. These objectives were the following:
• The food supply for the inhabitants should be guaranteed through agricultural production within the Member States of the European community.
• The farming families should be able to realize a reasonable living standard.
18 This section is based on
• Agricultural product markets should be stable markets which are able to deal with shocks in supply.
Although the European community has changed in many respects since its Rome treaty, these main objectives regarding agricultural sector and food supply have not fundamentally changed.
These policy objectives were pursued by a number of policy instruments. Initially, these instruments were primarily directed at increasing the productivity of farmers. The productivity increase was promoted through a variety of measures. One of these measures was meant to improve the agricultural structure, by enlarging the size of farmers and increasing the scale of operation. In 1958, the Dutch government started with its agriculture-structure policy laid down in its Meerjarenplan voor ruilverkaveling (Long-term plan for redistribution of land) in order to raise the size of farms as well as to raise the labour productivity. As part of this agriculture-structure policy, the government established the Ontwikkelings- en Saneringsfonds (Development and Reconstruction fund) in 1963, which was initially meant to help small farmers with financial difficulties. Gradually, this fund was used to foster the structural change by facilitating the process of closure of small firms and increasing the size of other firms.
Another type of measure was meant to foster research and development in agricultural technologies. The Dutch government started already with promoting research and application of new insights and methods in agriculture at the end of the 19th century. This policy resulted in various
types of organisations, such as Proefstations (experimental farms), plantenziektenkundige dienst (Phytopathology Service), and the Landbouwhogeschool (now: Wageningen University and Research, WUR).
The Dutch government cooperated closely with the industry. Together they established information and education programmes to support
farmers or to convince small farmers to stop. The industry also participated in the O&S fund. Moreover, the public-private organisation the Landbouwschap was created and which organisation received legal powers to implement sector-specific regulation.
As the agricultural product prices were high due to scarcity in international agricultural markets immediately after WO II, governments took measures in order to protect consumers against too high international prices. Later on, when the productivity of agricultural industry increased, international prices reduced, which resulted in too low prices for less productive farmers. In order to support the business of these farmers, governments took price measures in order to protect these farmers from too low prices. This resulted in guaranteed minimum prices for many agricultural products.
This price regulation became a kind of industry policy to protect an industry. The representatives of the agricultural sector were in favour of such a policy instead of income support as price regulation was less transparent as a kind of industry policy and, therefore, they believed it would be less vulnerable to political debate. There existed a general agreement (among all stakeholders, including government) about the need to regulate prices as minimum prices, but more discussion was about the level of the minimum levels.
Generally, the policy became to set the minimum price levels based on the costs of an efficient farm, which implied that the prices were too low for many small and old farms. This Dutch price regulation became later also the basis for the EU agricultural policy when the Dutch Minister of Agriculture (Mr. Mansholt), became EU commissioner in 1958 for about a decade. Besides this regulation of prices, governments also strongly intervened in markets by removing barriers for trade within the European
community, but at the same time creating barriers for import from outside the EU (De Groot and Bouwens, 1990).
3.3 Effectiveness of policy 3.3.1 Productivity
The productivity of the agricultural sector has increased strongly since 1950. The production of potatoes, sugar beets and wheat per hectare of land more than doubled (Figure 3.1). The production per farm increased even more because of this increase production per hectare in combination with the increase in firm sizes (Figure 3.2).
Figure 3.1 Production of potatoes, sugar beets and wheat per hectare, 1950-2015
Figure 3.2 Production of milk, potatoes, wheat and sugar beet per farm, 1950-2019
Source: CBS
3.3.2 Structural change
As the productivity of agricultural firms could only be raised so strongly by increasing the firm size, the many small farms had to grow or to sell the land to other firms enabling them to increase in size. Initially, the focus was on helping small firms to grow. Therefore, the Dutch government initiated the Borgstellingsfonds, which was a fund able to give a financial guarantee to lenders of debt capital in order to enable them to provide loans to agricultural firms. In addition, a number of Dutch firms were offered the option to move to the new agriculture areas in the newly created land (de polders), which also resulted in more firms having a larger size with a higher productivity.
Later on, the focus of the Dutch agricultural policy became to restructure the sector, by helping small farmers to stop and to help other
farmers to grow. This distinction was expressed as blijvers (remainers) and wijkers (leavers). Government and agricultural organisations established “information and education programmes” to help both groups of farmers. In addition, the government established the Ontwikkelings- and Saneringsfonds (O&S fund), in which also the agricultural organisations participated, to financially facilitate this process. This was a great success.
The structure of the agricultural sector changed dramatically since 1950. The number of firms with meadows declined from about 250,000 in 1950 to less than 50,000 now (see Figure 3.3). Together with the decrease in the number of farms, the total employment in the agricultural sector declined as well (Figure 3.4). Agricultural firms grew in firm size, not only measured in terms of hectare and number of animals per firm, but also in the number of people working on a farm (Figure 3.5).
Figure 3.3 Number of agricultural firms per sector, 1950-2019
Figure 3.4 Employment in the agricultural sector, 1980-2019
Source: CBS
Figure 3.5 Employment in the agricultural sector, 1980-2019
3.3.3 Total production
The strong increase in productivity contributed to the growth in total agricultural production. The production of in particular milk, sugar beets and consumption potatoes increased strongly (Figure 3.6).
Figure 3.6 Agricultural production in Netherlands, 1945-2019
Source: CBS
This strong increase in domestic agricultural production has mainly been realized by becoming one of the top global exporters (see Figure 3.7). Even in absolute terms, the Netherlands is globally the number second in terms of the value of agricultural export. The Netherlands also imports significant amounts of agricultural products, which indicates that the agricultural sector is also dependent on the supply of inputs from other countries. Nevertheless, the agricultural trade balance is one of the largest globally. Only Brazil realizes a higher surplus in international trade (see Figure 3.8).
Figure 3.7 Top 5 countries with highest value of agricultural Export, with export, import and trade balance, 2018
source: WUR/Agrimatie.nl
Figure 3.8 Countries with the highest positive trade balance and countries with most negative trade balance, 2018
3.3.4 Income and prices
As agricultural firms operate on international, competitive markets, the incomes of farmers fluctuate quite strongly. Nevertheless, the average income per farm family has been significantly higher than the modal income in the Netherlands (Figure 3.9).
Figure 3.9 Family income in agricultural sectors in comparison to modal income in the Netherlands, 2001-2019
Sources: Agricultural income: Wageningen Economic Research; modal income: CPB The food prices for Dutch consumers have increased in nominal terms, but corrected for inflation, they have not risen much.
Figure 3.10 Prices of some agricultural products in the Netherlands, 2001-2019
Source: CBS
Figure 3.11 Environmental emissions by the Dutch agricultural sector, 1990-2019
